‘So grim’: Aussie retail now in recession

The Australian economy has been dealt another blow with a leading business survey declaring the retail sector is "clearly in recession".

The data from major bank NAB comes a week after the Reserve Bank was forced to cut interest rates to its lowest level in history and Australian Bureau of Statistics data showed the economy had slowed to its weakest level since the global financial crisis in 2009.

In figures released today, the NAB index of business conditions dropped two points in May, leaving it well below the long-run average.

Speaking on the NAB Economics podcast, NAB group chief economist Alan Oster agreed with the proposition that the Australian retail sector was now "GFC-level terrible".

"Retail is really, really doing it tough, and it's getting worse," he said.

The retail sector has been plagued with multiple company closures in the past two years but Mr Oster said conditions had deteriorated sharply over recent months.

"While the retail industry has lagged the other sectors for some time, the recent deterioration has seen conditions in the industry fall to levels not seen since the GFC," he said.

"This suggests that the consumer remains highly cautious with anything but spending on essentials because of ongoing slow income growth, high debt levels and possibly some concerns over falling house prices."

Mr Oster did not want to "overemphasise" the doom and gloom in the sector, but said "readings of -27, which we've got in retail, is so grim".

Figures showed consumers in Australia were reluctant to spend and the recently elected Morrison Government would need to deliver on its promised tax cuts to stimulate the economy, Mr Oster said.

The NAB survey for May tracks business confidence and business conditions.

In contrast, the survey's measure of business confidence rebounded seven points taking it just above the average.

However, Queensland University of Technology associate professor and retail expert Gary Mortimer rejected the claims the sector was "clearly in recession", saying such declarations were alarming for businesses.

"Pointing to the recent release of the ABS retail sales for April, retail sales nationally rose 0.2 per cent in April," he told news.com.au.
"This follows a rise of 0.2 per cent in March 2019, and a rise of 0.2 per cent in February."

Food retailing rose 0.4 per cent in April driven by the discount department stores sector, which was up 0.2 per cent

"However, footwear and clothing again struggled," Dr Mortimer said.

"Certain sectors are clearly struggling - such as apparel, footwear and accessories - however this category has been impacted by aggressive discounting and the entry of international fast fashion retailers."

The Government will need to speed up the delivery of income tax cuts to stimulate the economy, a NAB economist warns. Picture: Kym Smith

The NAB survey's measure of trading, or sales, slipped five points, while profitability fell four points. Forward orders also dropped a point.

"Forward-looking indicators suggest that the bounce in confidence is likely to be short-lived and that conditions are unlikely to turn around any time soon," Mr Oster said.

One bright spot was a three-point bounce in the survey's employment index, which pointed to some resilience in labour demand after the official jobless rate unexpectedly rose to 5.2 per cent in April.

The RBA cited the need to push unemployment lower when it cut rates by a quarter point to 1.25 per cent, and said it would not be unreasonable to expect a further easing ahead.